Trade deficit blows out as mining cools

AUSTRALIA has posted its biggest trade deficit since before the global financial crisis, as households and businesses continue to exploit the high dollar by spending up on imported goods and services.

Despite a rebound in iron ore exports in November, the nation's trade ledger sank to a $2.6 billion deficit during the month, the widest gap since early 2008.

The worse-than-expected result, which was the fourth-biggest trade deficit in Australian history, was mainly caused by a $478 million jump in imports. Helped by the buoyant dollar, imports rose by 5 per cent in the past year, increasing pressure on trade-exposed sectors including retail and manufacturing.

The latest jump in imports more than offset a $285 million rise in exports, and the Bureau of Statistics also revised up the size of the deficit for October by about $350 million.

Despite the large deficit, economists believed the nation's trade position was likely to improve in the long term as the resources boom entered a new phase of higher production.

The result had a muted impact on financial markets, with the dollar drifting slightly lower but above US1.05¢ after the figures were published.

A senior economist at the Commonwealth Bank, Michael Workman, said the negative trade balance was a second-order concern for many overseas investors, who remained fairly upbeat about Australia's prospects. ''From an offshore perspective, people look at us and say the deficits are relatively low and a large part of the deficit is due to mining investment … which has a big capital component,'' he said.

Australia has now posted 11 trade deficits in the row, which Mr Workman considered a slight drag on growth. But in the longer term, he said, the spending on mining equipment would support stronger export earnings and higher incomes.

Mr Workman expected smaller quarterly trade deficits this year and next as output rose from coal, iron ore and liquefied natural gas.

The numbers also contained some positive signs for the nation's biggest export - iron ore.

During the month, higher prices pushed up the value of iron ore exports by more than $600 million and, economists say, the value of exports probably rose further last month. In a positive sign for the economy and federal budget, big buying in China has sent iron ore prices above $US150 a tonne this week, compared with $US86 in September.

Exports of services such as tourism, which have been greatly affected by the strong Australian dollar, also rose during the month and have now risen by 4.9 per cent during the year.

This story was found at: http://www.theage.com.au/business/trade-deficit-blows-out-as-mining-cools-20130108-2cesh.html